text:
(a) The Legislature finds that the economic environment of financial institutions has become increasingly volatile as a result of regulatory revisions enacted by the United States Congress and federal agencies including, but not necessarily limited to, the Comptroller of the Currency, the Federal Home Loan Bank Board, Federal Reserve Board, and the Depository Institutions Deregulation Committee. The Legislature further finds that deposit rate ceilings are being phased out while the cost of and competition for funds have escalated. It is the purpose of this section to maintain the quality of competition between state-licensed and federally regulated financial institutions in the field of mortgage lending, as well as promote the convenience, advantage and best interests of California residents in their pursuit of adequate and available housing. In order to remain competitive and provide the optimum housing environment for the citizens of California, state institutions require the ability to respond in a timely manner to changes in mortgage lending parameters initiated at the federal level. Local regulatory guidelines must promote continued parity between the state and federal levels in order to avoid creation of discriminatory burdens upon state institutions and to protect interests held by California citizens. It is the intent of the Legislature to eliminate past and prevent future inequities between state and federal financial institutions doing business in the State of California by creating a sensitive and responsive mortgage parity procedure.

(b) The Secretary of Business and Consumer Services or the secretary’s designee as defined by subdivision (c) of Section 1918.5, shall have the authority to prescribe rules and regulations extending to lenders who make loans upon the security of residential real property any right, power, privilege or duty relating to mortgage instruments that is equivalent to authority extended to federally regulated financial institutions by federal statute or regulation.

(c) In order to grant equivalent mortgage lending authority to state financial institutions to that which has been extended to federal financial institutions, the secretary or the secretary’s designee shall adopt such regulations within 60 days of the effective date of the statute or regulation extending the comparable right, power, privilege, or duty to federally regulated financial institutions.

(d) The provisions of Sections 1916.5, 1916.6, 1916.7, 1916.8, and 1916.9, and any other provisions of law relating to the requirements for changes in the rate of interest on loans, shall not be applicable to loans made pursuant to the provisions of this section and regulations promulgated thereunder.

(e) Any regulations adopted pursuant to this section shall expire on January 1 of the second succeeding year following the end of the calendar year in which the regulation was promulgated. Subsequent amendments to these regulations cannot extend this expiration date.

(f) The amendments made to this section by the act adding this subdivision shall become operative on July 1, 2026.

history: (History: Amended by Stats. 2026, Ch. 28, Sec. 12. (SB 170) Effective June 29, 2026. Operative July 1, 2026, by its own provisions.)

title: 4. LOAN


kind: section

code: CIV

citation: CIV § 1917

text:
For purposes of this chapter:

(a) “Contingent deferred interest” means the sum a borrower is obligated to pay to a lender pursuant to the documentation of a shared appreciation loan as a share of (1) the appreciation in the value of the security property (2) rents and profits attributable to the subject property, or (3) both.

(b) A “shared appreciation loan” means any loan made upon the security of an interest in real property which additionally obligates the borrower to pay to the lender contingent deferred interest pursuant to the loan documentation. “Shared appreciation loan” does not include any loan made upon the security of an interest in real property containing one to four residential units at least one of which at the time the loan is made is or is to be occupied by the borrower.

history: (History: Added by Stats. 1987, Ch. 652, Sec. 1.)

title: 4. LOAN

chapter: 3.5. Shared Appreciation Loans

path: 4. LOAN > 3.5. Shared Appreciation Loans


text: The relationship of the borrower and the lender in a shared appreciation loan transaction is that of debtor and creditor and shall not be, or be construed to be, a joint venture, equity venture, partnership, or other relationship.

title: 4. LOAN


text: A shared appreciation loan shall not be subject to any provisions of this code or the Financial Code which limits the interest rate or change of interest rate of variable, adjustable, or renegotiable interest instruments, or which requires particular language or provisions in security instruments securing variable, adjustable, or renegotiable rate obligations or in evidences of such debts except for those specifically imposed by Chapter 4 (commencing with Section 1917.010) or Chapter 7 (commencing with Section 1917.320) for loans subject to those chapters. This section is declaratory of existing law.

title: 4. LOAN


text: The lien or liens of a deed or deeds of trust securing a shared appreciation loan shall include and secure the principal amount of the shared appreciation loan, and all interest, whether accrued or to be accrued, including all amounts of contingent deferred interest.

history: (History: Amended by Stats. 1989, Ch. 1416, Sec. 5.)

title: 4. LOAN


text:
(a) The lien of a shared appreciation loan, including the principle amount and all interest, whether accrued or to be accrued, and all amounts of contingent deferred interest, shall attach from the time of the recordation of the deed of trust securing the loan, and the lien, including the lien of the interest accrued, or to be accrued, and of the contingent deferred interest, shall have priority over any other lien or encumbrance affecting the property encumbered by the shared appreciation deed of trust which is recorded after the time of recordation of the shared appreciation deed of trust. Nothing in this section shall preclude a junior or subordinate lien to the deed of trust securing the shared appreciation loan.

(b) Any deed of trust that acts as security for a shared appreciation loan shall indicate on the document that the deed of trust secures a shared appreciation loan.

title: 4. LOAN


text: Lenders shall be exempt from the usury provisions of Article XV of the California Constitution with respect to shared appreciation loan transactions. This section is declaratory of existing law.

title: 4. LOAN


text:
For purposes of this chapter:

(a) “Shared appreciation loan” means, in addition to the meaning defined in Section 1917, a loan that obligates the borrower to pay to the lender contingent deferred interest pursuant to the loan documentation and that is made upon the security of an interest in real property that is an owner-occupied residence in compliance with all of the following conditions:

(1) The loan is made by, and all contingent deferred interest paid with respect to the loan is used by, a local public entity to provide financial assistance in the acquisition of housing that is affordable to persons and families of low or moderate income, as defined in Section 50093 of the Health and Safety Code.

(2) The loan is made or acquired with assets of the local public entity other than the proceeds of a bond meeting the requirements of Section 143 of the United States Internal Revenue Code of 1986.

(3) The loan documentation assures that the obligation to pay contingent deferred interest is subject to a superior right of the borrower, upon termination of the loan, to receive repayment of money paid by the borrower for purchase of the security property (including downpayment, installment payments of mortgage principal, escrow fees, transfer taxes, recording fees, brokerage commissions and similar costs of acquisition actually paid by the borrower) and money paid by the borrower for capital improvements to the security property, plus not less than the legal rate of interest on those cash payments.

(4) The loan documentation assures that the amount of contingent deferred interest shall not exceed that percentage of the appreciation in appraised fair market value of the security property that equals the local public entity’s proportionate share of the total initial equity in the security property. The amount of the total initial equity and of the local public entity’s share of the initial equity shall be agreed upon by the borrower and the local public entity at the time of executing the shared appreciation loan and shall include the local public entity’s cash investment, the difference between the price of land provided by the local public entity and the fair market value of the land, the amount of fees waived by the local public entity, and the value of in-kind contributions made by or on behalf of the local public entity. Funds borrowed by the borrower, the repayment of which are secured by the security property, shall not be included in the calculation of total initial equity of the borrower.

(5) At least 30 days in advance of executing the loan documentation, the borrower receives full disclosure of the terms and conditions of the loan, including the economic consequences to the borrower of the obligation to pay contingent deferred interest.

(b) “Local public entity” means a city and county, or a housing authority or redevelopment agency of a city and county.

(c) “Owner-occupied residence” means real property containing one to four residential units at least one of which at the time the loan is made is, or is to be, occupied by the borrower.

history: (History: Added by Stats. 1990, Ch. 1606, Sec. 1.)

title: 4. LOAN


text:
The Legislature hereby finds and declares that:

(a) It is necessary and essential that the state provide and promote alternative means of supplying affordable housing to the citizens of the state.

(b) High interest rates have caused payment schedules for new long-term, fixed-rate and adjustable-rate mortgages to exceed affordable levels for the vast majority of the state’s households.

(c) Because of current economic conditions, including high and volatile interest rates, alternative mortgage instruments must be developed to supplement the standard long-term, fixed-rate mortgage.

(d) Because the interest to which the lender is entitled under a shared appreciation mortgage includes a share of the appreciated value of the property securing the loan, the periodic payments under a shared appreciation mortgage are lower and, therefore, more affordable to borrowers than under a mortgage in which the lender’s interest does not include a share of the appreciated value of the property. State authorization of the shared appreciation loan for pension fund lenders will serve the need to develop alternative and more affordable means of financing the construction of new housing and the subsequent marketing of new homes, and to create vitally needed jobs in the construction industry.

(e) Pension funds may find shared appreciation loans suited to their investment needs since yields are keyed to appreciation in property values, which may serve as a hedge against inflation.

history: (History: Repealed and added by Stats. 1982, Ch. 466, Sec. 11. Inoperative January 1, 1990, by Stats. 1982, Ch. 466, Sec. 11.5.)

title: 4. LOAN

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 1. Legislative Findings and Declarations


text:
For purposes of this chapter:

(a) “Adjusted fair market value” means all of the following:

(1) The net sale price, in the case of a bona fide sale made in good faith prior to the maturity date of the shared appreciation loan, but excluding any sale upon a foreclosure or trustee’s sale pursuant to Section 726 of the Code of Civil Procedure or Section 2924.

(2) In all other cases, the amount of value of the property specified in the most recent annual appraisal performed pursuant to Section 1917.040 or 1917.042.

(b) “Borrower’s cost of the property” means the total cost to the borrower incident to the purchase of the property, including documentary transfer taxes, escrow and recording fees, and title insurance premiums.

(c) “Contingent deferred interest” means the sum resulting upon multiplying the net appreciated value by one-third.

(d) “Cost of capital improvements” means the amount of the credit, if any, determined pursuant to Article 5 (commencing with Section 1917.050).

(e) “Lender” means any person who makes a shared appreciation loan on behalf of a pension fund specified in Section 1917.030. Subsequent to an assignment of a shared appreciation loan to a pension fund pursuant to Section 1917.030, “lender” shall mean the pension fund assignee (or any subsequent assignee) and its agents designated to service the shared appreciation loan.

(f) “Net appreciated value” means the adjusted fair market value less the sum of the borrower’s cost of the property and the cost of capital improvements.

(g) “Net sale price” means the gross sale price less expenses of sale actually paid by the borrower, including real estate commissions, advertising, documentary transfer taxes, legal, escrow and recording fees, and title insurance premiums.

(h) “Prevailing rate” means the weighted average yield accepted by the Federal National Mortgage Association in its most recent free market system auction for four-month conventional mortgage commitments or, if the Federal National Mortgage Association alters its free market system auction, then the system which is adopted by the Federal National Mortgage Association which substantially replaces or supersedes the present free market system auction for four-month commitments, or if no auction or equivalent thereof has been conducted within the six months immediately preceding the date the application for a shared appreciation mortgage loan is executed, the weighted average cost of funds for the 11th District Savings and Loan Associations as computed by the Federal Home Loan Bank of San Francisco.

(i) “Shared appreciation loan” means any loan made pursuant to this chapter upon the security of owner-occupied real property of a type specified in Section 1917.030, and in connection with which the lender has a right to receive a share of the appreciation in the value of the security property. “Shared appreciation loan” includes a deed of trust and any evidence of debt issued in connection with the loan.

history: (History: Amended by Stats. 1984, Ch. 1267, Sec. 1. Inoperative January 1, 1990, by Stats. 1982, Ch. 466, Sec. 11.5.)

title: 4. LOAN

article: 2. Definitions

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 2. Definitions


text: Lenders may make shared appreciation loans pursuant to this chapter for the purchase of real property improved with one- to four-family dwelling units, including structures ancillary to such dwelling units and including attached single-family dwelling units, single-family mobilehome units placed upon permanent foundations, residential condominium units and dwelling units within a planned unit development. Shared appreciation loans shall be made to finance only owner-occupied dwelling units, but in the case of two- to four-unit dwellings financed under this chapter only one of the units need be owner-occupied. The original recipient of a shared appreciation loan shall certify in writing to the lender that he or she will occupy the security property as his or her principal residence, provided that failure to so occupy the security property shall not void a shared appreciation loan, but at the option of the lender the loan may be accelerated in accordance with the terms and conditions provided in the shared appreciation loan. All shared appreciation loans shall be originated by the lender on behalf of a pension fund which is subject to the Employee Retirement Income Security Act of 1974 (P.L. 93-406, 88 Stat. 829), pursuant to a prior written commitment to purchase the loan.

title: 4. LOAN

article: 3. Terms and Conditions

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 3. Terms and Conditions


text:
A shared appreciation loan shall include the following terms and conditions:

(a) The term of the loan, excluding refinancing under Section 1917.033, shall be at least seven years, but not more than 30 years.

(b) The repayment schedule for the loan, excluding refinancing under Section 1917.033, shall be cast so that full amortization of the principal amount of the loan would occur in 30 years, regardless of the actual term of the loan. Any principal balance remaining at maturity shall be due and payable at that time, unless refinanced as provided in Section 1917.033. Monthly installment payments shall be equal in amount and in addition to amortization of principal, shall include fixed interest pursuant to subdivision (d).

(c) The loan shall be secured by a deed of trust or mortgage on the real property financed.

(d) The loan shall bear interest at a fixed rate, which shall be one-third below the prevailing rate in effect 90 days prior to the loan closing, or at another date between that date and the loan closing if mutually agreed by the lender and borrower.

(e) The borrower shall additionally be obligated to pay contingent deferred interest in the amount of one-third of the net appreciated value of the real property which secures the loan, at the time the property is sold (including a sale pursuant to a land sale contract), when title is transferred, other than a transfer specified in Section 2924.6, when a lease with an option to purchase is entered into, when a partnership is formed which in effect transfers the beneficial ownership to another person, when a trust is created which affects title to the property, upon a judicial or nonjudicial foreclosure sale, at the time the loan is prepaid in full, or upon the maturity of the loan, whichever first occurs.

title: 4. LOAN

chapter: 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds

article: 3. Terms and Conditions


text:
(a) The borrower shall have the right to prepay, at any time, in full or in part, the principal loan balance of the shared appreciation loan, together with accrued interest, including deferred contingent interest.

(b) Nothing in this chapter shall prevent a borrower from obligating himself or herself, by an agreement in writing, to pay a prepayment charge, as authorized by this section, upon prepayment of the loan, in full or in part, within five years of the date of execution of the shared appreciation loan.

(c) Any prepayment charge imposed upon the prepayment of a shared appreciation loan shall not exceed the amount authorized and specified in subdivision (b) of Section 2954.9.

(d) No prepayment charge shall be imposed as to any portion of the contingent deferred interest.

title: 4. LOAN

article: 3. Terms and Conditions


text:
(a) If the shared appreciation loan is not prepaid in full or the real property securing the loan is not sold or transferred prior to maturity of the loan, the lender shall offer to the original borrower refinancing of the unpaid balance of the loan and all contingent deferred interest.

(b) The term of the refinancing loan shall be at least 30 years from the date of the refinancing, provided that if the interest rate of the refinancing loan is not adjustable or variable during the term of such loan, the loan may contain a call provision giving the lender an option to accelerate the principal loan balance making it, together with accrued interest, payable in full at a date specified in the shared appreciation loan, which shall be no earlier than seven years following the date of refinancing under this section. If such a call provision is included in the refinancing loan, a concise description thereof shall be included in upper case print in the disclosures on refinancing required by Section 1917.071.

(c) The interest rate for the refinancing loan shall not exceed the prevailing rate existing at maturity of the shared appreciation loan.

(d) The lender may require as a condition of the refinancing loan that it be secured by a deed of trust or mortgage of first priority on the property financed.

(e) The terms and conditions of refinancing pursuant to this section shall be specified in the shared appreciation loan, shall be a part of the shared appreciation loan contract, and shall be subject to the applicable laws in effect on the date of execution of the shared appreciation loan. The refinancing shall be fully amortizing and the interest rate may be either fixed or adjustable as permitted by law for home financing offered by banks or savings and loan associations doing business in this state to the public for financing housing similar to the borrower’s property, provided that nothing in this section shall preclude such other lawful refinancing terms as may be mutually acceptable to the borrower and lender. If the lender offers more than one form of refinancing, the borrower may select from among the types of refinancing offered by the lender.

title: 4. LOAN

article: 3. Terms and Conditions


text: Nothing in this chapter shall preclude the borrower from obtaining any other financing, in lieu of the refinancing provided for in Section 1917.033, including refinancing on other terms that are mutually agreeable to the borrower and lender.

title: 4. LOAN

article: 3. Terms and Conditions


text: The fair market value of the real property securing a shared appreciation loan shall be determined annually as provided in this article. The lender shall select an independent appraiser annually to perform an appraisal of the property subject to a shared appreciation loan. The appraisal shall be performed within 30 days preceding the anniversary date of the loan and a copy of the current appraisal shall be sent by first-class mail to the borrower no later than five days following the anniversary date of the loan, together with a notice informing the borrower that the appraisal will constitute a final and conclusive determination of the value of the property for certain purposes and that if the borrower disputes the amount of the appraisal, the borrower may procure an independent appraisal as provided in Section 1917.041. The lender may require the borrower to pay for the cost of the appraisal.

title: 4. LOAN

article: 4. Annual Appraisals

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 4. Annual Appraisals


text: If the borrower disputes the amount of the appraisal, the borrower, within 30 days of the anniversary date of the loan, may procure an appraisal of the property at the borrower’s expense by a qualified independent appraiser, and a copy of the appraisal shall be sent by first-class mail to the lender within the 30-day period.

title: 4. LOAN

article: 4. Annual Appraisals


text: If the appraisal by the appraiser selected by the borrower is lower in amount than the appraisal by the appraiser selected by the lender, the amount to be used to calculate the annual adjustment shall be one-half of the sum of the two appraisals.

title: 4. LOAN

article: 4. Annual Appraisals


text: The appraisal amount, as determined pursuant to Section 1917.040 if the borrower does not dispute the appraisal amount, or 1917.042 if the borrower disputes the appraisal amount, shall constitute the value of the property from and after the anniversary date of the loan for the purpose of determining the property’s adjusted fair market value under Section 1917.020.

title: 4. LOAN

article: 4. Annual Appraisals


text: The qualifications of the appraisers may be specified by the terms of the shared appreciation loan for purposes of this article and Article 5 (commencing with Section 1917.050).

title: 4. LOAN

article: 4. Annual Appraisals


text:
The borrower may have the cost of capital improvements to the security property completed within any 12-month period, and with an appraised value in excess of two thousand five hundred dollars ($2,500), added to the borrower’s cost of the property, for purposes of determining the contingent deferred interest, but only if the procedures set forth in this article are followed.

(a) Within 60 days following the completion of the improvements, the borrower shall send by first-class mail a notice of the completion of the improvements to the lender and shall submit proof of cost of the improvements.

(b) Within 90 days following the completion of the improvements, the lender shall select an appraiser to perform an appraisal to determine the increase in value of the property, if any, by reason of the improvements. A copy of the appraisal shall be sent by first-class mail to the borrower, together with a notice informing the borrower that the appraisal will constitute a final and conclusive determination of the increase in the value of the property by reason of the improvement for purposes of computing the net appreciated value of the property, and that if the borrower disputes the amount of the appraisal, the borrower may procure an independent appraisal as provided in subdivision (c). The lender may require the borrower to pay for the cost of the appraisal.

(c) If the borrower disputes the amount of the appraisal, the borrower, within 120 days of the completion of the improvements, may secure at borrower’s expense, a qualified, independent appraiser to perform an appraisal to determine the increase in value of the property, if any, by reason of the improvements, and a copy of the appraisal shall be sent by first-class mail to the lender within that period of time.

(d) If the appraisal of the appraiser selected by the borrower is greater in amount than the appraisal by the appraiser selected by the lender, the amount of the appraisal, for the purposes of this section, shall be one-half of the sum of the two appraisals.

(e) The lesser of the borrower’s actual cost or the appraised increase in the value of the property by reason of the improvements shall be available as a credit to the buyer for purposes of determining net appreciated value, except as provided in subdivision (f).

(f) If 50 percent or more of the value of the labor or other work on the improvements was performed by the borrower, then the appraised increase in the value of the property by reason of the improvements shall be the cost of capital improvements for purposes of establishing the credit under this section.

title: 4. LOAN

article: 5. Improvements

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 5. Improvements


text: The relationship of the borrower and the lender, as to a shared appreciation loan, is that of debtor and creditor and shall not be, or be construed to be, a joint venture, equity venture, partnership, or other relationship.

title: 4. LOAN

article: 6. General Provisions

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 6. General Provisions


text: Any waiver of any right of a borrower under the provisions of this chapter shall be void and unenforceable.

title: 4. LOAN

article: 6. General Provisions


text:
(a) Notwithstanding Section 711, a provision in a shared appreciation loan (not including the refinancing obligation) permitting the lender to accelerate the maturity date of the principal and accrued interest on the loan upon a sale or other transfer of the property, as specified in subdivision (e) of Section 1917.031, shall be valid and enforceable against the borrower, except as may be precluded by Section 2924.6.

(b) The Legislature finds and declares that potential exposure to liability for enforcement of a “due-on-sale” clause consistent with Section 711, as interpreted by the courts, makes use of such a provision impractical. Moreover, the additional risks to the lender inherent in shared appreciation financing are greater with longer loan terms (which are more desirable from the standpoint of housing affordability), but this risk is reduced with an enforceable “due-on-sale” clause. Therefore, in order to facilitate shared appreciation financing, it is necessary to establish the exception specified in subdivision (a).

title: 4. LOAN

article: 6. General Provisions


text:
This chapter facilitates the making of shared appreciation financing in this state which conforms to the provisions of this chapter. The terms and conditions of any shared appreciation loan made pursuant to this chapter shall be consistent with this chapter. This chapter does not, however, apply to or limit shared appreciation financing of real property of a type specified in Section 1917.030 that is made pursuant to other provisions of law, or which is not otherwise unlawful. Nothing in this chapter shall be construed to in any way affect shared appreciation financing of commercial property or residential property not meeting the criteria specified in Section 1917.030.

Nothing in this chapter precludes a pension fund specified in Section 1917.030 from providing shared appreciation financing pursuant to Chapter 5 (commencing with Section 1917.110) or any other provision of law, or which is not otherwise unlawful.

history: (History: Repealed and added by Stats. 1982, Ch. 1346, Sec. 5. Inoperative January 1, 1990, by Stats. 1982, Ch. 466, Sec. 11.5.)

title: 4. LOAN

article: 6. General Provisions


text:
A shared appreciation loan shall not be subject to any provision of this code or the Financial Code which limits the interest rate or change of interest rate of variable, adjustable, or renegotiable interest instruments, or which requires particular language or provisions in security instruments securing variable, adjustable, or renegotiable rate obligations or in evidences of such debts.

This section is declaratory of existing law.

title: 4. LOAN

article: 6. General Provisions


text: The lien of a deed of trust securing a shared appreciation loan shall include and secure the principal amount of the shared appreciation loan, and all interest, whether accrued or to be accrued, including all amounts of contingent deferred interest.

title: 4. LOAN

article: 6. General Provisions


text: The lien of a shared appreciation loan, including the principal amount and all interest, whether accrued or to be accrued, and all amounts of contingent deferred interest, shall attach from the time of the recordation of the deed of trust securing the loan, and the lien, including the lien of the interest accrued or to be accrued and of the contingent deferred interest, shall have priority over any other lien or encumbrance affecting the property secured by the shared appreciation instrument which is recorded after the time of recordation of the shared appreciation instrument. However, nothing in this section or Section 1917.165 shall preclude a junior lien or encumbrance subordinate to the obligation of the shared appreciation loan.

title: 4. LOAN

article: 6. General Provisions


text:
Lenders shall be exempt from the usury provisions of Article XV of the California Constitution with respect to shared appreciation loans made pursuant to this chapter.

This section is declaratory of existing law.

history: (History: Amended by Stats. 1983, Ch. 557, Sec. 1. Inoperative January 1, 1990, by Stats. 1982, Ch. 466, Sec. 11.5.)

title: 4. LOAN

article: 6. General Provisions


text: The qualification requirements of Sections 25110, 25120, and 25130 of the Corporations Code shall not apply to a shared appreciation loan, provided (1) the loan obligation is evidenced by one promissory note secured by a deed of trust which is not one of a series of notes secured by interests in the same real property and (2) the loan obligation is not evidenced by fractional undivided interests in one promissory note secured by interests in the same real property.

title: 4. LOAN

article: 6. General Provisions


text: The aggregate amount of any fee charged to the borrower for processing an application and preparing any necessary documents in connection with originating a shared appreciation loan shall not exceed the reasonable cost of providing the service. No prepaid interest shall be charged to the borrower, but nothing in this chapter shall preclude a lender from requiring a fee for providing commitments for shared appreciation loans to builders or others who will not be the ultimate borrower.

title: 4. LOAN

article: 6. General Provisions


text:
(a) The disclosures made pursuant to this chapter, as required, shall be the only disclosures required to be made pursuant to state law for shared appreciation loans, notwithstanding any contrary provisions applicable to loans not made under this chapter, except those, if any, that may be required by reason of the application of Division 1 (commencing with Section 25000) of the Corporations Code, or Chapter 1 (commencing with Section 11000) of Part 2 of Division 4 of the Business and Professions Code. A lender may, but shall not be required to, supplement the disclosures required by this article with additional disclosures that are not inconsistent with the disclosures required by this article.

(b) When very specific language is prescribed by this chapter, substantially the same language shall be utilized if possible, but reasonably equivalent language may be used to the extent necessary or appropriate to achieve a clearer or more accurate disclosure.

title: 4. LOAN

article: 7. Notices and Disclosures

path: 4. LOAN > 4. Shared Appreciation Loans of E.R.I.S.A. Pension Funds > 7. Notices and Disclosures


text:
(a) Each lender offering shared appreciation loans shall furnish to a prospective borrower, on the earlier of the date on which the lender first provides written information concerning shared appreciation loans from such lender or provides a loan application form to the prospective borrower, a written disclosure as provided in this section.

(b) The disclosure shall be entitled “INFORMATION ABOUT THE (Name of Lender) SHARED APPRECIATION LOAN,” and shall describe the operation and effect of the shared appreciation loan including a brief summary of its terms and conditions, together with a statement consisting of substantially the following language, to the extent applicable to such loan: INFORMATION ABOUT THE [Name of Lender] SHARED APPRECIATION LOAN (Name of Lender) is pleased to offer you the opportunity to finance your home through a shared appreciation loan.

Because the shared appreciation loan differs from the usual mortgage loan, the law requires that you should read and understand before you sign the loan documents.

The loan will bear a stated rate of interest which will be one-third below the prevailing market interest rate. In exchange for a stated interest rate which is below the prevailing rate, you will be obligated to pay us additional interest later. This additional interest is called “contingent deferred interest.” Contingent Deferred Interest This loan provides that you, as borrower, must pay to us, as lender, as contingent deferred interest, one-third of the net appreciated value of the real property which secures the loan. This contingent interest is due and payable when the property is sold or transferred, when the loan is paid in full, upon any acceleration of the loan upon default, or at the end of the term of the loan, whichever first occurs. The dollar amount of contingent interest which you will be required to pay cannot be determined at this time. If the property does not appreciate, you will owe us nothing.

Your obligation to pay contingent interest will reduce the amount of the appreciation, if any, that you will realize on the property. This appreciation will not produce a real gain in your equity in the property, unless the appreciation rate exceeds the general inflation rate, but you will be required to pay a portion of the appreciation as contingent interest without regard to whether the appreciation has resulted in a real gain.

When you sell or refinance your home, you normally will receive enough cash to pay the shared appreciation loan balance, accrued interest, prepayment penalty (if applicable), the contingent interest, and expenses of sale. However, if you sell with only a small downpayment, you may possibly not receive enough cash to pay the contingent interest, and, in that event, it will be necessary for you to provide cash from other funds.

If you do not sell the property before the end of the term of this loan, you will need to refinance this loan at that time. The term of this loan is (duration) years. We will offer to refinance the outstanding obligation, including any contingent interest, at that time. If you refinance this loan, your monthly payments may increase substantially if the property appreciates significantly or if the interest rate on the refinancing loan is much higher than today’s prevailing rates. In general, the more your property appreciated, the larger will be the amount of the contingent interest that you will have an obligation to pay or refinance.

The contingent interest will not become due if title to the property is transferred on your death to a spouse, or where a transfer results from a decree of dissolution of a marriage and a spouse becomes the sole owner. Calculating the Contingent InterestContingent interest will be calculated as follows:FAIR MARKET VALUE OF THE PROPERTY (Sale price or amount of value determined by appraisal.)–(less)BORROWER’S COST OF THE PROPERTY (This amount includes certain costs paid by you incident to the purchase.)–(less)COST OF CAPITAL IMPROVEMENTS MADE BY YOU IN ANY 12-MONTH PERIOD (Must exceed $2,500 in value. The actual amount may be the lesser of actual cost or appraised value.)_(equals)NET APPRECIATED VALUE×(times)ONE-THIRD PERCENTAGE OWED TO LENDER_(equals)TOTAL CONTINGENT INTERESTDetermining Net Appreciated Value We are entitled to receive one-third of the net appreciated value of the property as contingent interest. As explained above, net appreciated value equals (1) the fair market value of the property at the time of the sale or appraisal, less (2) your cost of the property, less (3) the value of any capital improvements for which you are entitled to credit. Determining Fair Market Value Fair market value is the sale price of the property in the case of a bona fide sale of the property made before the maturity of the shared appreciation loan, excluding certain foreclosure related sales. In all other cases, fair market value is determined by our most recent annual appraisal of the property. If you desire to contest the amount of our annual appraisal, you may obtain another appraisal by a qualified independent appraiser within 30 days after the anniversary date of the loan and send a copy of the appraisal to us by first-class mail within that 30-day period. If your appraiser’s appraisal is lower than our appraisal, the annual appraisal shall equal one-half the sum of the two appraisals. Determining Value of Capital Improvements The cost or value of certain capital improvements (but no maintenance or repair costs) may be added to your cost of the property for the purpose of determining the net appreciated value, but only if the procedures set forth in the shared appreciation loan documents are followed. It is important to note that capital improvements completed and for which a credit is claimed in any 12-month period must cost or be appraised at more than two thousand five hundred dollars ($2,500). The lesser of the cost or appraised value will control. However, if you have performed at least half the value of the labor or other work involved, then the appraised value of the improvements will control. The appraised value of the improvements shall be considered to be the increase in the value of the property resulting from the improvements. You will receive no credit for improvements that are not appraised at more than two thousand five hundred dollars ($2,500). Cost of Appraisals The terms of this loan call for annual appraisals of the property, and for additional appraisals to value improvements or in the event of a dispute regarding the value of the property or improvements. The cost of the appraisals will be paid as follows: Your Right to Refinance This Loan If the property is not sold or transferred prior to the maturity of the loan, we will offer to refinance the outstanding obligation on the loan, including any contingent interest. We will offer refinancing at the then prevailing interest rate either directly or through another mortgage lender.

The terms of the refinancing loan will be like home loans offered at that time by banks or savings and loan associations, but you are assured that at least one of the options will be a fully amortizing 30-year loan. The interest rate on the refinancing loan may be either fixed or adjustable, as provided in your shared appreciation loan.

We will not be permitted to look to the forecast of your income in offering to refinance. The interest rate and monthly payment upon refinancing cannot be determined at this time. They may be either more or less burdensome to you than the currently prevailing rates and terms. Tax Consequences Use of the shared appreciation loan will have income tax or estate planning consequences which will depend upon your own financial and tax situation. FOR FURTHER INFORMATION, YOU ARE URGED TO CONSULT YOUR OWN ACCOUNTANT, ATTORNEY OR OTHER FINANCIAL ADVISER. THE QUESTIONS YOU SHOULD DISCUSS INCLUDE THE TAX DEDUCTIBILITY OF THE CONTINGENT INTEREST PAYMENT, YOUR RIGHT TO UTILIZE THAT DEDUCTION IN YEARS OTHER THAN THE YEAR IT IS PAID, AND THE EFFECT OF THE LOSS OF TAX BENEFITS BEFORE THAT TIME. Other Important Information (Here insert additional description, if necessary, of the operation and effect of the shared appreciation loan.

The foregoing describes our shared appreciation loan, includes a summary of all of its important provisions, and informs you of some of the risks of a shared appreciation loan.

If your loan application is accepted by us, we will provide you with more information about your particular shared appreciation loan, which will include a comparison with conventional mortgages, an illustration of the possible increase in your monthly payments upon refinancing, and other important information.

Before you enter into a shared appreciation loan with us, we recommend that you and your attorney or tax accountant review the loan documents for the full text of all of the terms and conditions which will govern the loan.

title: 4. LOAN

article: 7. Notices and Disclosures


text:
(a) Each lender making a shared appreciation loan shall also furnish to the prospective borrower, prior to the consummation of the loan, the disclosures required by Subpart C of Federal Reserve Board Regulation Z (12 CFR Part 226), including 12 CFR Section 226.18(f), to the extent applicable to the transaction.

(b) The disclosure made pursuant to paragraph (a) and Regulation Z shall be based on the fixed interest rate of the shared appreciation loan, and shall include a description of the shared appreciation feature, including (1) the conditions for its imposition, the time at which it would be collected, and the limitations on the lender’s share, as required by the Federal Reserve Board in the information published by the Board at 46 Federal Register 20877 and 20878 (April 7, 1981), and (2) the lender’s share of the net appreciated value and the prevailing interest rate as defined in Section 1917.120(h).

(c) The disclosure made pursuant to paragraph (a) and Regulation Z shall be accompanied by (1) one or more transaction-specific examples of the operation and effect the shared appreciation loan, and (2) the following charts, comparing the shared appreciation loan and a conventional loan made at the prevailing interest rate, and illustrating the possible increase in the monthly payments, and the possible annual percentage rate of finance charge, on the assumptions therein stated: Chart 1CONVENTIONAL MORTGAGE AT ____%If the same loan balance were financed under a conventional, 30-year, fixed-rate, level-payment mortgage, your monthly payments would be:Years 1–30$_______/mo.Chart 2IF YOU REFINANCE THIS TRANSACTION AT ___%If your property appreciates at 10% per year, and if your loan balance (including contingent deferred interest due) at the end of __ years is refinanced at __% (the prevailing market interest rate now), your monthly payments will be:Years 1–__Refinancing loan$_______/mo.$_______/mo.**Refinancing loan, assuming a conventional, 30-year, fixed-rate, level-payment mortgage. Other mortgage instruments, e.g., graduated-payment or shared appreciation, if available, may result in lower payments.Chart 3APR IF PROPERTY APPRECIATES AT 10%If your property appreciates at 10% per year, the total finance charge on your shared appreciation loan (including contingent interest) will equal $____, and the annual percentage rate of the total finance charge (including contingent interest) will equal ____%.(d) The disclosures required by paragraph (c) shall be separated from the disclosures required by Regulation Z, and may be presented in the document containing the disclosures required by Regulation Z or in one or more separate documents.

(e) Except to the extent that this section requires disclosure of additional information not required by Regulation Z, compliance with the applicable credit disclosure requirements of Regulation Z shall constitute compliance with the requirements of this section.

(f) The disclosures prescribed in Section 1917.171 shall be physically attached to the disclosures required by this section and Regulation Z at the time such disclosures are furnished to the borrower.

(g) In the event federal law is amended so that this section is inconsistent therewith, the federal law shall prevail as to the disclosures required by this section.

title: 4. LOAN

article: 7. Notices and Disclosures


text:
Each lender making a shared appreciation loan shall additionally furnish to the prospective borrower, prior to the consummation of the loan, a statement containing the following information: IMPORTANT INFORMATION ABOUT YOUR SHARED APPRECIATION LOAN You are being offered a shared appreciation loan. Before you decide to accept this loan read this statement, which is designed to provide important information that you should consider.

1. Prevailing interest rate: __%.

2. Fixed interest rate on this loan: __%.

3. Lender’s share of net appreciated value: one-third.

4. Amount of this loan: $__.

5. Amount of the monthly payments: $__.

6. Term of this loan: __ years.

7. Amortization period on which payments are calculated: 30 years.

8. Prepayment penalty (if any) __.

title: 4. LOAN

article: 7. Notices and Disclosures


text: Each deed of trust and evidence of debt executed in connection with a shared appreciation loan shall contain a statement, printed or written in a size equal to at least 12-point bold type, consisting of substantially the following language: “THIS IS A [DURATION] SHARED APPRECIATION LOAN. THE LENDER'S INTEREST INCLUDES ONE-THIRD OF THE NET APPRECIATED VALUE OF THE PROPERTY. FOR FURTHER INFORMATION, READ THE FLYER "INFORMATION ABOUT THE [NAME OF LENDER] SHARED APPRECIATION LOAN.'" The notice required by this section shall be completed to state the term of the shared appreciation loan.

title: 4. LOAN

article: 7. Notices and Disclosures


text: Where, pursuant to any provision of law, the lender is required to disclose the amount of interest due or to be due under a shared appreciation loan and the amount of contingent deferred interest due or to be due is not known, the lender may disclose that fact and specify in the disclosure the method for calculating contingent deferred interest.

title: 4. LOAN

article: 7. Notices and Disclosures


text:
The Legislature hereby finds and declares that:

(a) It is necessary and essential that the state provide and promote alternative means of supplying affordable housing to the citizens of the state.

(b) Because of current economic conditions, including the unprecedented fluctuation in interest rates, alternative mortgage instruments must be developed to supplement the standard long-term, fixed-rate mortgage.

(c) State facilitation of the shared appreciation loan will serve the need to develop alternative means of financing housing, particularly new homes, and will help to create vitally needed jobs in the construction industry.

history: (History: Repealed and added by Stats. 1982, Ch. 466, Sec. 12. Inoperative January 1, 1987, by Stats. 1982, Ch. 466, Sec. 12.5.)

title: 4. LOAN

chapter: 5. Shared Appreciation Loans

path: 4. LOAN > 5. Shared Appreciation Loans > 1. Legislative Findings and Declarations


text:
For purposes of this chapter:

(a) “Borrower” means the recipient or recipients of a shared appreciation loan and includes any successor in interest to the borrower under a shared appreciation loan, to the extent such succession is permitted by law or by the terms of the shared appreciation loan.

(b) “Borrower’s cost of the property” means the price paid by the borrower for the purchase of the property to be financed with a shared appreciation loan and also includes documentary transfer taxes, escrow and recording fees, title insurance premiums, and any other fees directly paid by the borrower as a necessary or customary cost of consummating acquisition of the property. However, if the purchase price to be paid for the property does not reasonably reflect the true value of the property, the borrower may request that, in lieu of the actual price paid, the “borrower’s cost of the property” be established at an amount mutually agreed by the lender and borrower or be established by averaging two appraisals in the same manner as specified in Section 1917.142 for determination of fair market value. Nothing in this subdivision shall be construed to require a lender to make shared appreciation loans with the borrower’s cost of the property established on the basis of appraisals.

(c) “Contingent deferred interest” means the lender’s share of net appreciated value, calculated as the sum resulting upon multiplying the net appreciated value by a percentage agreed by the lender and borrower, not to exceed 50 percent.

(d) “Fair market value” means the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available.

Fair market value shall be determined pursuant to Article 4 (commencing with Section 1917.140).

(e) “Lender” means any person who makes a shared appreciation loan or the successor in interest to any such person.

(f) “Net appreciated value” means the fair market value less the sum of the borrower’s cost of the property and the value of capital improvements. Nothing in this chapter shall, however, preclude a shared appreciation loan from additionally including a provision requiring deduction of any or all of the borrower’s costs of selling the property from fair market value in determining, “net appreciated value,” and if such a provision is included, the disclosures required by Section 1917.171 shall be modified accordingly.

(g) “Prevailing rate” means the weighted average yield accepted by the Federal National Mortgage Association in its most recent free market system auction for four-month conventional mortgage commitments. In the event that the Federal National Mortgage Association discontinues or substantially alters its free market system auction for conventional mortgages then the “prevailing rate” shall be the average yield established at the most recent immediate delivery auction of the Federal Home Loan Mortgage Corporation, or if the auction has been discontinued, then the “prevailing rate” shall be specified in the shared appreciation loan as either (1) the most recently published Federal Home Loan Bank Board mortgage contract rate or (2) the average single-family home mortgage rate for the 10 largest savings and loan associations with principal offices in this state.

(h) “Property” means the property financed by the shared appreciation loan.

(i) “Sale” means any transfer of title to the property and additionally includes the execution of an installment sale contract giving the purchaser a right to possess the property before transfer of title, refinancing, judicial sale on execution or other legal process of foreclosure or trustee’s sale (regardless of whether initiated by the lender), but “sale” does not include a transfer specified in Section 2924.6.

(j) “Shared appreciation loan” means any loan made pursuant to this chapter upon the security of owner-occupied real property of a type specified in Section 1917.130, and in connection with which the lender has a right to receive a share of the appreciation in the value of the security property. “Shared appreciation loan” includes a deed of trust and any evidence of debt issued in connection with the loan.

(k) “Value of capital improvements” means the amount of the credit or credits for capital improvements, if any, determined pursuant to Article 5 (commencing with Section 1917.150).

title: 4. LOAN

article: 2. Definitions

path: 4. LOAN > 5. Shared Appreciation Loans > 2. Definitions


text: Lenders may make shared appreciation loans pursuant to this chapter for the purchase of real property improved with one- to four-dwelling units, including structures ancillary to such dwelling units and including attached single-family dwelling units, single-family mobilehome units placed upon permanent foundations, residential condominium units, and dwelling units within a planned unit development. Shared appreciation loans shall be made to finance only owner-occupied dwelling units, but in the case of two- to four-unit dwellings financed under this chapter only one of the units need be owner-occupied. A dwelling unit shall be conclusively deemed to be owner-occupied for purposes of this chapter if an original recipient of the shared appreciation loan certifies in writing to the lender at the time the loan is made that he or she will occupy the property.

title: 4. LOAN

article: 3. Terms and Conditions

path: 4. LOAN > 5. Shared Appreciation Loans > 3. Terms and Conditions


text:
A shared appreciation loan shall include the following terms and conditions:

(a) The term of the loan, excluding any refinancing under Section 1917.133, shall be at least seven years, but not more than 30 years.

(b) The repayment schedule for the loan, excluding any refinancing under Section 1917.133, shall be cast so that full amortization of the principal amount of the loan would occur in not less than 30 nor more than 40 years, regardless of the actual term of the loan. Any principal balance remaining at maturity shall be due and payable at that time, unless refinanced as provided in Section 1917.133. Monthly installment payments shall be equal in amount, except for the final payment when a principal balance is remaining at maturity, and in addition to amortization of principal shall include fixed interest pursuant to subdivision (d).

(c) The loan shall be secured by a deed of trust on the real property financed.

(d) The loan shall bear interest at a fixed rate, which shall be established in relation to the prevailing rate (1) in effect 90 days prior to the loan closing, (2) in effect at another date between that date and the loan closing if and as mutually agreed by the lender and borrower, or (3) in effect at the time of the lender’s loan commitment given to the borrower or to the person from whom the borrower purchases the property. The percentage by which the fixed interest rate is reduced below the applicable prevailing rate shall be at least one-half the lender’s percentage share of net appreciated value which is contingent deferred interest, except that if the shared appreciation loan is for less than 80 percent of the borrower’s purchase price of the property, the percentage by which the fixed interest rate is reduced below the applicable prevailing rate shall be at least two-thirds the lender’s percentage share of net appreciated value which is contingent deferred interest.

(e) The borrower shall additionally be obligated to pay to the lender contingent deferred interest (1) at the time of sale of the property if the lender accelerates the principal balance of the loan in accordance with a provision in the shared appreciation loan authorized by Section 1917.162, (2) at the time the loan is prepaid in full, upon acceleration of the loan upon default, or (3) upon the maturity of the loan, whichever first occurs.

(f) The aggregate amount of any fee charged to the borrower by the lender for processing an application, preparing any necessary documents, obtaining a credit report, or any other costs incurred by the lender in connection with originating a shared appreciation loan shall not exceed two percent of the principal amount of the loan or five hundred dollars ($500), whichever is greater. No prepaid interest shall be charged to the borrower, but nothing in this chapter shall preclude a lender from requiring a fee for providing commitments for shared appreciation loans to builders or others who purchase such commitments and who will not be the ultimate borrower.

title: 4. LOAN

article: 3. Terms and Conditions


text:
(a) The borrower shall have the right to prepay, at any time, in full or in part, the principal loan balance of the shared appreciation loan, together with accrued interest, including contingent deferred interest.

(b) Nothing in this chapter shall prevent a borrower from obligating himself or herself, by an agreement in writing, to pay a prepayment charge upon prepayment of the loan, in full or in part, made within five years of the date of execution of the shared appreciation loan.

(c) Any prepayment charge imposed upon the prepayment of a shared appreciation loan shall not exceed the amount authorized and specified in subdivision (b) of Section 2954.9.

(d) No prepayment charge shall be imposed as to any portion of the contingent deferred interest.

title: 4. LOAN

article: 3. Terms and Conditions


text:
(a) If a shared appreciation loan with an original term of less than 10 years is not prepaid in full or the property is not sold or transferred prior to maturity of the loan, and provided the borrower is not then in default, the lender shall offer or arrange for refinancing of the unpaid balance of the loan upon maturity and all contingent deferred interest. The refinancing may be provided directly by the lender or another mortgage lender, or the lender may arrange at the time of making the shared appreciation loan for the refinancing to be provided by a federally or state chartered bank or savings and loan association doing business in this state or by a qualified mortgage banker. As used in this section “qualified mortgage banker” means a lender (1) meeting the criteria established by the Government National Mortgage Association for lenders selling over ten million dollars ($10,000,000) in mortgage loans to that organization annually and (2) which either has conducted an ongoing business of mortgage lending in this state for not less than five years immediately preceding the making of the shared appreciation loans, or made over fifty million dollars ($50,000,000) in mortgage loans in this state during the 12 months immediately preceding the making of the shared appreciation loan. If a refinancing commitment is arranged by the lender upon origination of the shared appreciation loan, this fact shall be fully and fairly disclosed to the borrower, a copy of the lender’s contract with the bank, savings and loan association or qualified mortgage banker making the commitment shall be supplied to the borrower at such time, and the contract shall be fully enforceable by the borrower as a third-party beneficiary thereto, but the lender shall not be a guarantor of the obligation of the bank, savings and loan association, or qualified mortgage banker to provide refinancing.

If the original lender is a bank or savings and loan association doing business in this state or a qualified mortgage banker, it may provide the refinancing commitment to the borrower required by this section and assignees or successors in interest of the original lender shall not be guarantors of the refinancing obligation, provided the shared appreciation loan contains this limitation, which is fully and fairly disclosed to the borrower, and the original lender’s refinancing commitment is fully enforceable by the borrower.

(b) The term of the loan for refinancing shall be established so that the borrower’s repayment schedule provides for the final installment payment not less than 30 years from the date of origination of the shared appreciation loan. However, if loans at that duration are not available, within the meaning of subdivision (d), the lender or other obligor shall give the borrower a choice of any form of loan and maturity for that type of loan which is available at the time of refinancing, within the meaning of subdivision (d). The lender or other obligor shall inform the borrower of the types of loans (and maturities) available for refinancing under this section not less than 60 days prior to maturity of the shared appreciation loan.

(c) The interest rate for the refinancing loan shall not exceed rates generally available in the market for the type of loan instrument provided under subdivision (d) at the time of maturity of the shared appreciation loan. No loan origination fees shall be required of the borrower, either as prepaid interest or for processing services, as a condition of obtaining a refinancing loan pursuant to this section, but the borrower may be required to pay the costs of obtaining a policy of title insurance in accordance with the lender’s requirements. The refinancing loan need not be a fixed interest rate loan, subject to the limitations of subdivision (d).

(d) The refinancing loan may be any form of loan which, at the time of refinancing, is generally offered to and utilized by the public for financing housing like the borrower’s property by banks or savings and loan associations doing business in this state.

(e) The lender may require as a condition of the refinancing loan that it be secured by a deed of trust having a lien of first priority.

title: 4. LOAN

article: 3. Terms and Conditions


text: Except as provided in this article, the terms and conditions of the refinancing loan shall be subject to all laws applicable to loans in effect on the date of refinancing.

title: 4. LOAN

article: 3. Terms and Conditions


text: Nothing in this chapter shall preclude the borrower from obtaining any other financing, in lieu of the refinancing provided for in Section 1917.133, including refinancing on other terms mutually agreeable to the borrower and lender.

title: 4. LOAN

article: 3. Terms and Conditions


text:
The borrower may, at any time for the purpose of facilitating a sale of the property, request the lender to stipulate the minimum amount which the lender considers to be the fair market value of the property for the purposes of this chapter. The lender shall advise the borrower within 10 working days of the receipt of such request of the lender’s estimate of the minimum fair market value. The estimate shall remain effective for purposes of this section for 90 days. For the purposes of this section and Section 1917.141, a sale of the property shall be deemed to have occurred within the 90-day period if there is a valid contract entered by an offer and acceptance within the 90-day period for the sale of the property. The lender’s stipulation shall remain effective for an additional 60 days following execution of the sale contract to permit completion of the sale and close of escrow.

The lender shall not be liable to the borrower or any other party on account of damages alleged as a result of providing the stipulation or estimate required by this section if such stipulation or estimate is made in good faith. Evidence of lack of good faith shall include, but not be limited to, a showing that the lender has willfully or repeatedly overrepresented the fair market value of other properties in similar situations, applying equitable principles to those determinations. The lender shall be conclusively presumed to have acted in good faith and no action may be brought or maintained against a lender which arises out of the provision by the lender of such stipulation or estimate, if the lender relied upon an appraisal of an independent appraiser approved by the Federal National Mortgage Association.

title: 4. LOAN

article: 4. Determination of Fair Market Value

path: 4. LOAN > 5. Shared Appreciation Loans > 4. Determination of Fair Market Value


text:
(a) In the case of a sale for cash within 90 days after the lender stipulates, under the provisions of Section 1917.140, a minimum amount which the lender considers to be the fair market value of the property, the fair market value shall be the gross sale price, unless the gross sales price is below the minimum amount stipulated by the lender and the lender contests in writing the reasonableness of the gross sale price in relation to the fair market value within 10 working days of the lender’s receipt of notice of the gross sale price from borrower, in which case fair market value shall be the greater of gross sale price or the amount determined under Section 1917.142.

(b) In the case of a sale for cash where the borrower has not requested the lender under the provisions of Section 1917.140 to stipulate to the minimum amount which the lender considers to be the fair market value of the property or where the stipulated minimum amount was provided by the lender more than 90 days prior to the date of sale, fair market value shall be the gross sale price, unless lender contests in writing the reasonableness of the gross sale price in relation to the fair market value within 10 working days of the lender’s receipt of notice of the gross sale price from borrower, in which case fair market value shall be the greater of gross sale price or the amount determined under Section 1917.142.

(c) In the case of a sale which includes consideration to the seller other than cash, fair market value shall be as determined under Section 1917.142.

(d) In the case the shared appreciation loan is prepaid in full, or upon acceleration of the shared appreciation loan upon default, or upon maturity of the shared appreciation loan, fair market value shall be as determined under Section 1917.142.

title: 4. LOAN

article: 4. Determination of Fair Market Value


text:
When Section 1917.141 requires the application of this section, the fair market value shall be determined as the average of two appraisals of the property performed as described in this section. If possible, the appraisals shall be based on the sale prices of comparable properties in the market area sold within the preceding three-month period. The appraisals shall be made upon request of the lender by two independent residential appraisers, one to be selected by the lender and one by the borrower. Each appraiser shall be approved by the Federal National Mortgage Association. The cost of the appraiser selected by the lender shall be borne by the lender, and the cost of the appraiser selected by the borrower shall be borne by the borrower, unless the average of the two appraisals equals or is less than the gross sale price of the property, in which case the lender shall also pay the fee of the borrower’s appraiser up to two hundred dollars ($200). If either of the appraisers determines that the gross sale price does not reasonably reflect the fair market value of the property, or, in the case of a sale for which appraisal is required by this section, then the fair market value of the property shall be determined as the average of the two appraisals. If the borrower fails to select a qualified appraiser within 15 days after the lender has notified the borrower in writing of the lender’s request for an appraisal of the property, the reasons therefor, and the borrower’s option to select an independent appraiser within 15 days after the lender’s request is submitted to the borrower, the lender may designate the second appraiser, provided the lender’s request informs the borrower of this time limitation, and that the lender will select an appraiser on behalf of the borrower in the event the borrower fails to designate an appraiser, with consequent cost to the borrower. If pursuant to this section the lender designates the second appraiser, the cost of both appraisals shall be borne equally by the borrower and lender. If in any case the property has been damaged (other than normal wear and tear) and the damage has not been fully repaired, the determination of fair market value shall be based on the condition of the property not including the damage.

Nothing in this section shall preclude the borrower and lender from establishing the fair market value of the property by mutual agreement in lieu of appraisals pursuant to this section.

title: 4. LOAN

article: 4. Determination of Fair Market Value


text:
The borrower may have the value of capital improvements added to the borrower’s cost of the property, for purposes of determining net appreciated value and the amount of contingent deferred interest, but only if the procedures set forth in this article are followed.

(a) Within 60 days following the completion of capital improvements during any 12-month period with a cost in excess of two thousand five hundred dollars ($2,500), the borrower shall send by first-class mail a notice of the completion of the improvements to the lender and shall submit proof of cost and an estimate of the increase in value of the property by reason of the improvements.

(b) If, within 30 days of receipt of the notice, the lender questions the claimed increase in value of the property by reason of the improvements, the lender and the borrower may, by mutual agreement, establish the value of the capital improvements or the lender may require appraisal of the property. An appraisal shall be made to determine the increase in value of the property, if any, by reason of the improvements, by two appraisers selected in the same manner specified in Section 1917.142. If appraisals are performed, the increase in value resulting from the improvements for the purposes of this section, shall be one-half of the sum of the two appraisals. The cost of the appraiser selected by the borrower shall be borne by the borrower, and the cost of the appraiser selected by the lender shall be borne by the lender.

(c) A credit for the value of capital improvements shall be provided if the increase in value of the property resulting therefrom is determined pursuant to subdivision (b) to exceed two thousand five hundred dollars ($2,500).

(d) If 50 percent or more of the value of the labor or other work on the improvements was performed by the borrower, then the actual cost of the improvements need not exceed two thousand five hundred dollars ($2,500) for purposes of making application under subdivision (a).

title: 4. LOAN

article: 5. Improvements

path: 4. LOAN > 5. Shared Appreciation Loans > 5. Improvements


text: Nothing in this article shall preclude a shared appreciation loan from providing the borrower with a greater credit for improvements than specified in this article, provided the relevant disclosures required by Article 7 (commencing with Section 1917.170) are appropriately modified to accurately disclose the terms of the credit.

title: 4. LOAN

article: 5. Improvements


text: The relationship of the borrower and the lender, as to a shared appreciation loan, is that of debtor and creditor and shall not be, or be construed to be, a joint venture, equity venture, partnership, or other relationship.

title: 4. LOAN

article: 6. General Provisions

path: 4. LOAN > 5. Shared Appreciation Loans > 6. General Provisions


text: Any waiver of any right of a borrower under the provisions of this chapter shall be void and unenforceable.

title: 4. LOAN

article: 6. General Provisions


text:
(a) Notwithstanding Section 711, a provision in a shared appreciation loan made pursuant to this chapter permitting the lender to accelerate the maturity date of the principal and accrued interest on the loan upon sale of the property shall be valid and enforceable against the borrower, except as may be precluded by Section 2924.6.

(b) The Legislature finds and declares that potential exposure to liability for enforcement of a “due-on-sale” clause consistent with Section 711, as interpreted by the courts, makes use of such a provision impractical. Moreover, the additional risks to the lender inherent in shared appreciation financing are greater with longer loan terms (which are more desirable from the standpoint of housing affordability), but this risk is reduced with an enforceable “due-on-sale” clause. Therefore, in order to facilitate shared appreciation financing, it is necessary to establish the exception specified in subdivision (a).

title: 4. LOAN

article: 6. General Provisions


text: This chapter facilitates the making of shared appreciation financing in this state which conforms to the provisions of this chapter. The terms and conditions of any shared appreciation loan made pursuant to this chapter shall be consistent with this chapter. This chapter does not, however, apply to or limit shared appreciation financing of real property of a type specified in Section 1917.130 that is made pursuant to other provisions of law, or which is not otherwise unlawful. Nothing in this chapter shall be construed to in any way affect shared appreciation financing of commercial property or residential property not meeting the criteria specified in Section 1917.130.

title: 4. LOAN

article: 6. General Provisions


text:
A shared appreciation loan shall not be subject to any provision of this code or the Financial Code which limits the interest rate or change of interest rate of variable interest rate or renegotiable interest instruments, or which requires particular language or provisions in security instruments securing variable or renegotiable rate obligations or in evidences of those debts.

This section is declaratory of existing law.

title: 4. LOAN

article: 6. General Provisions


text: The lien of a deed of trust securing a shared appreciation loan shall include and secure the principal amount of the shared appreciation loan, and all interest, whether accrued or to be accrued, including all amounts of contingent deferred interest.

title: 4. LOAN

article: 6. General Provisions


text: The lien of a shared appreciation loan, including the principal amount and all interest, whether accrued or to be accrued, and all amounts of contingent deferred interest, shall attach from the time of the recordation of the deed of trust securing the loan, and the lien, including the lien of the interest accrued or to be accrued and of the contingent deferred interest, shall have priority over any other lien or encumbrance affecting the property secured by the shared appreciation instrument, recorded after the time of recordation of the shared appreciation instrument. However, nothing in this section or Section 1917.165 shall preclude a junior lien or encumbrance subordinate to the obligation of the shared appreciation loan. In no case may a junior lien achieve priority over the lien securing the obligation of the shared appreciation loan, provided that nothing in this section shall be construed to supersede Section 8450.

history: (History: Amended by Stats. 2010, Ch. 697, Sec. 11. (SB 189) Effective January 1, 2011. Amendment operative July 1, 2012, by Sec. 105 of Ch. 697. Section inoperative January 1, 1987 (as part of Chapter 5, comm. with Section 1917.110), pursuant to Stats. 1982, Ch. 466, Sec. 12.5.)

title: 4. LOAN

article: 6. General Provisions


text: A shared appreciation loan which at origination bears a fixed interest rate complying with the usury provisions of Article XV of the California Constitution shall not be deemed to become usurious by reason of the payment of contingent deferred interest pursuant to this chapter.

title: 4. LOAN

article: 6. General Provisions


text: The qualification requirements of Sections 25110, 25120, and 25130 of the Corporations Code do not apply to a shared appreciation loan to the extent the exemption afforded by subdivision (p) of Section 25100 of that code is applicable.

title: 4. LOAN

article: 6. General Provisions


text:
(a) The disclosures made pursuant to this chapter, as required, shall be the only disclosures required to be made pursuant to state law for shared appreciation loans, notwithstanding any contrary provision applicable to loans not made under this chapter, except those, if any, that may be required by reason of the application of Division 1 (commencing with Section 25000) of the Corporations Code, or Chapter 1 (commencing with Section 11000) of Part 2 of Division 4 of the Business and Professions Code. However, a lender shall not be precluded from supplementing the disclosures required by this chapter with additional disclosures that are not inconsistent with the disclosures required by this chapter.

(b) Whenever specific language is prescribed by this chapter, substantially the same language shall be utilized if possible, but reasonably equivalent language may be used to the extent necessary or appropriate to achieve a clearer or more accurate disclosure.

title: 4. LOAN

article: 7. Notices and Disclosures

path: 4. LOAN > 5. Shared Appreciation Loans > 7. Notices and Disclosures


text:
(a) Each lender offering shared appreciation loans shall furnish to a prospective borrower, on the earlier of the dates on which the lender first provides written information concerning shared appreciation loans from the lender or provides a loan application form to the prospective borrower, a written disclosure as provided in this section.

(b) The disclosure shall be entitled “INFORMATION ABOUT THE (Name of Lender) SHARED APPRECIATION LOAN,” and shall describe the operation and effect of the shared appreciation loan including a brief summary of its terms and conditions, together with a statement consisting of substantially the following language, to the extent applicable to such loan: INFORMATION ABOUT THE (Name of Lender) SHARED APPRECIATION LOAN (Name of Lender) is pleased to offer you the opportunity to finance your home through a shared appreciation loan.

Because the shared appreciation loan differs from the usual mortgage loan, the law requires that you have a detailed explanation of the special features of the loan before you apply. Before you sign your particular shared appreciation loan documents, you will receive more information about your particular shared appreciation loan, which you should read and understand before you sign the loan documents.

The loan will bear a stated rate of interest which will be (percent) below the prevailing market interest rate. In exchange for a stated interest rate which is below the prevailing rate, you will be obligated to pay us additional interest later. This additional interest is called “contingent interest.”

The loan will require a balloon payment at the end of the _____ year. Thus, if you do not sell the property before that time, you will need to refinance the loan at that time. Contingent Interest This loan provides that you, as borrower, must pay to us, as lender, as contingent interest, (percent) of the net appreciated value of the real property which secures the loan. This contingent interest is due and payable when the property is sold or transferred, when the loan is paid in full, upon any acceleration of the loan upon default, or at the end of the term of the loan, whichever first occurs. The dollar amount of contingent interest, if any, which you will be required to pay cannot be determined at this time. If the property does not appreciate, you will owe us nothing. The contingent interest will not become due if title to the property is transferred on your death to a spouse, or where a transfer results from a decree of dissolution of a marriage and a spouse becomes the sole owner.

Your obligation to pay contingent interest will reduce the amount of the appreciation, if any, that you will realize on the property. This appreciation will not produce a real gain in your equity in the property, unless the appreciation rate exceeds the general inflation rate, but you will be required to pay a portion of the appreciation as contingent interest without regard to whether the appreciation has resulted in a real gain.

When you sell or refinance your home, you normally will receive enough cash to pay the shared appreciation loan balance, accrued interest, prepayment charge (if applicable), contingent interest, and expenses of sale. However, if you sell with only a small downpayment, you may possibly not receive enough cash to pay the contingent interest, and, in that event, it will be necessary for you to provide cash from other funds. Calculating the Contingent InterestContingent interest will be calculated as follows:FAIR MARKET VALUE OF THE PROPERTY (Sale price or apprasied value.)–(less)BORROWER’S COST OF THE PROPERTY (This amount includes certain costs paid by you incident to the purchase.)–(less)VALUE OF CAPITAL IMPROVEMENTS MADE BY YOU (Must exceed $2,500 in value. Must also exceed $2,500 in cost unless you perform more than 50% of the value of the labor or work on the improvement.)_(equals)NET APPRECIATED VALUE×(times)______ PERCENT OWED TO LENDER_(equals)TOTAL CONTINGENT INTERESTDetermining Fair Market Value If you sell your property for cash before maturity of your shared appreciation loan, the gross sale price will be the fair market value of the property, unless appraisals are requested by us and the appraisals average more than the gross sale price. However, at your request, we also will tell you what we consider to be the fair market value of the property. If you sell for cash for a gross sale price that equals or exceeds that amount, the gross sale price will control and appraisals will not be needed.

Fair market value is determined by appraisals in the event of sales involving a consideration other than cash, prepayment of the loan in full, or maturity of the loan.

When appraisals are required, fair market value is determined by averaging two independent appraisals of the property. You may select one of the two appraisers from a list approved by the Federal National Mortgage Association. If appraisals are requested by us, we will provide you with full information on how to select an appraiser.

In lieu of appraisals, we may establish fair market value at an agreed amount if an agreement can be reached between you and us. Determining Value of Capital Improvements Capital improvements with a value exceeding $2,500 (but no maintenance or repair costs) may be added to your cost of the property for the purpose of determining the net appreciated value, but only if the procedures set forth in the shared appreciation loan documents are followed. It is important to note that capital improvements completed and claimed in any 12-month period must add more than $2,500 in value to the property and must generally also cost more than $2,500. However, if you have performed at least half the value of the labor or other work involved, then the cost of the improvements will not be considered. The appraised value of the improvements will be the increase in the value of the property resulting from the improvements. You will receive no credit for minor or major repairs or for improvements that are not appraised at more than $2,500, but the lender will acquire a share of any resulting appreciation in the value of the property. Determining Net Appreciated Value We are entitled to receive __ percent of the net appreciated value of the property as contingent interest. As shown in the chart above, net appreciated value equals (1) the fair market value of the property at the time of the sale or appraisal, less (2) your cost of the property, less (3) the value of any capital improvements for which you are entitled to credit. Balloon Payment of Principal If you do not sell the property before the end of the term of this loan, you will need to refinance this loan at that time. The term of this loan is (duration) years. We [are not obligated to refinance either the unpaid balance of the loan or the contingent interest at that time; you alone will be responsible for obtaining refinancing] [will offer or arrange with another lender to refinance the outstanding obligation, including any contingent interest, at that time]. If you refinance this loan, your monthly payments may increase substantially if the property appreciates significantly or if the interest rate on the refinancing loan is much higher than today’s prevailing rates. In general, the more your property appreciates, the larger will be the amount of the contingent interest that you will have an obligation to pay or refinance. Your Right to Refinance This Loan (For loans with a refinancing obligation) If the property is not sold or transferred prior to the maturity of the loan, we will offer or arrange with another lender to refinance the outstanding obligation of the loan, including any contingent interest. The refinancing will be at the then prevailing interest rate.

The terms of the refinancing loan will be like those of home loans offered at that time by banks or savings and loan associations. If at the time of refinancing, banks or savings and loan associations in this state offer loans of sufficient duration, you are assured that the combined length of your shared appreciation loan and refinancing loan will be at least 30 years. However, if loans of sufficient duration are not then offered by banks or savings and loan associations, you may elect any type and maturity of loan then offered by banks or savings and loan associations.

We will not be permitted to look to the forecast of your income in offering or arranging for your refinancing loan. The interest rate and specific terms of any refinancing loan will be subject to then-prevailing market conditions. The interest rate and monthly payment upon refinancing cannot be determined at this time. They may be either more or less burdensome to you than the currently prevailing rates and terms. Tax Consequences (For all loans) USE OF THE SHARED APPRECIATION LOAN WILL HAVE INCOME TAX OR ESTATE PLANNING CONSEQUENCES WHICH WILL DEPEND UPON YOUR OWN FINANCIAL AND TAX SITUATION. FOR FURTHER INFORMATION, YOU ARE URGED TO CONSULT YOUR OWN ACCOUNTANT, ATTORNEY, OR OTHER FINANCIAL ADVISOR.

THE QUESTIONS YOU SHOULD DISCUSS INCLUDE THE TAX DEDUCTIBILITY OF THE CONTINGENT INTEREST PAYMENT, YOUR RIGHT TO UTILIZE THAT DEDUCTION IN YEARS OTHER THAN THE YEAR IT IS PAID, AND THE EFFECT OF THE LOSS OF TAX BENEFITS BEFORE THAT TIME. Other Important Information (Here insert additional description, if necessary, of the operation and effect of the shared appreciation loan.

The foregoing describes our shared appreciation loan, includes a summary of all of its important provisions, and informs you of some of the risks of a shared appreciation loan.

If your loan application is accepted by us, we will provide you with more information about your particular shared appreciation loan, which will include a comparison with conventional mortgages, an illustration of the possible increase in your monthly payments upon refinancing, and other important information.

Before you enter into a shared appreciation loan with us, we recommend that you and your attorney or tax accountant review the loan documents for the full text of all of the terms and conditions which will govern the loan.

title: 4. LOAN

article: 7. Notices and Disclosures


text:
(a) Each lender making a shared appreciation loan shall also furnish to the prospective borrower, prior to the consummation of the loan, the disclosures required by Subpart C of Federal Reserve Board Regulation Z (12 CFR Part 226), including 12 CFR Section 226.18(f), to the extent applicable to the transaction.

(b) The disclosure made pursuant to subdivision (a) and Regulation Z shall be based on the fixed interest rate of the shared appreciation loan, and shall include a description of the shared appreciation feature, including (1) the conditions for its imposition, the time at which it would be collected, and the limitations on the lender’s share, as required by the Federal Reserve Board in the information published by the board in 46 Federal Register 20877-78 (April 7, 1981), and (2) the lender’s share of the net appreciated value and the prevailing interest rate as defined in Section 1917.120 of the Civil Code.

(c) The disclosure made pursuant to subdivision (a) and Regulation Z shall be accompanied by (1) one or more transaction-specific examples of the operation and effect of the shared appreciation loan and (2) the following charts comparing the shared appreciation loan and a conventional loan made at the prevailing interest rate, and illustrating the possible increase in the monthly payments, and the possible annual percentage rate of finance charge, on the assumptions therein stated: Chart 1CONVENTIONAL MORTGAGE AT ____%If the same loan balance were financed under a conventional, 30-year, fixed-rate, level-payment mortgage, your monthly payments would be:Years 1–30$_______/mo.Chart 2IF YOU REFINANCE THIS TRANSACTION AT ___%If your property appreciates at 10% per year, and if your loan balance (including contingent interest due) at the end of __ years is refinanced at __% (the prevailing market interest rate now), your monthly payments will be:Years 1–__Refinancing loan$_______/mo.$_______/mo.**Refinancing loan, assuming a conventional, 30-year, fixed-rate, level-payment mortgage. Other mortgage instruments, e.g., graduated-payment or shared-appreciation, if available, may result in lower payments.Chart 3APR IF PROPERTY APPRECIATES AT 10%If your property appreciates at 10% per year, the total finance charge on your shared appreciation loan (including contingent interest) will equal $____, and the annual percentage rate of the total finance charge (including contingent interest) will equal ____%.(d) The disclosures required by subdivision (c) shall be separate from the disclosures required by Regulation Z, and may be presented in the document containing the disclosures required by Regulation Z or in one or more separate documents.

(e) Except to the extent that this section requires disclosure of additional information not required by Regulation Z, compliance with the applicable credit disclosure requirements of Regulation Z shall constitute compliance with the requirements of this section.

(f) The disclosure prescribed in Section 1917.171 shall be physically attached to the disclosures required by this section and Regulation Z at the time the Regulation Z disclosures are furnished to the borrower.

(g) In the event federal law is amended so that this section is inconsistent therewith, the federal law shall prevail as to the disclosures required by this section.

title: 4. LOAN

article: 7. Notices and Disclosures


text:
Each lender making a shared appreciation loan shall additionally furnish to the prospective borrower, prior to consummation of the loan, a statement containing the following information: IMPORTANT INFORMATION ABOUT YOUR SHARED APPRECIATION LOAN

You are being offered a shared appreciation loan. Before you decide to accept this loan, read this statement, which is designed to provide important information you should consider.

1. Prevailing interest rate: __%.

2. Interest rate on this loan: __%.

3. Lender’s share of net appreciated value: __%.

4. Amount of this loan: $__.

5. Amount of the monthly payments: $__.

6. Term of this loan: __ years.

7. Amortization period on which payments are calculated: __ years.

8. Prepayment charge (if any): __.

title: 4. LOAN

article: 7. Notices and Disclosures


text: Each deed of trust and evidence of debt executed in connection with a shared appreciation loan shall contain a statement, printed or written in a size equal to at least 12-point bold type, consisting of substantially the following language: “THIS IS A [DURATION] SHARED APPRECIATION LOAN. THE LENDER'S INTEREST INCLUDES [PERCENT] OF THE NET APPRECIATED VALUE OF THE PROPERTY. A BALLOON PAYMENT OF PRINCIPAL WILL BE REQUIRED. FOR FURTHER INFORMATION, READ THE FLYER ENTITLED "INFORMATION ABOUT THE [NAME OF LENDER] SHARED APPRECIATION LOAN. ”’ The notice required by this section shall be completed to state the terms of the shared appreciation loan and the lender’s share of the net appreciated value.

title: 4. LOAN

article: 7. Notices and Disclosures


text: Where, pursuant to any provision of law, the lender is required to disclose the amount of interest due or to be due under a shared appreciation loan and the amount of contingent deferred interest due or to be due is not known, the lender may disclose that fact and specify in the disclosure the method for calculating contingent deferred interest.

title: 4. LOAN

article: 7. Notices and Disclosures


text: Each pension fund or retirement system which is subject to the Employee Retirement Income Security Act of 1974 (P.L. 93-406), shall not be required to obtain any license or certificate in order to provide funds for any type of loan transaction permitted by law.

history: (History: Added by Stats. 1983, Ch. 557, Sec. 2.)

title: 4. LOAN

chapter: 6. Loans of E.R.I.S.A. Pension Funds

path: 4. LOAN > 6. Loans of E.R.I.S.A. Pension Funds


text:
Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligation of, loan made by, or forbearance of, any pension fund or retirement system which is subject to the Employee Retirement Income Security Act of 1974 (P.L. 93-406).

This section creates and authorizes pension funds or retirement systems subject to the Employee Retirement Income Security Act of 1974 (P.L. 93-406) as an exempt class of persons pursuant to Section 1 of Article XV of the Constitution.

title: 4. LOAN